Australia to cash in on China's economic growth

Despite the economic slowdown, China's economic expansion plan for the 2011-15 period and its increasingly surging demand for commodities such as iron ore and coal will continue to spur growth in Australia, China's top envoy to Australia said.

The economic slowdown could "affect China's demand for mineral goods in the short term, but from a long-term perspective, it is unnecessary for us to worry about the Chinese economy and its demand or to hold any doubts about the closer bilateral economic and trade relations between China and Australia," said Chen Yuming, China's ambassador to the resource-rich nation.

"China will continue to be the growth engine of the Australian and global economies in the next five years," he said.

The global financial crisis and eurozone debt woes have taken a toll on developed economies. The United States, with a stubbornly high unemployment rate, has launched its third round of quantitative easing, also called QE3.

Unlike previous programs, the third round has no defined limit and will continue until the labor market improves.

And while many European countries, especially Greece and Spain, face mounting debt problems, the European Central Bank recently sent its strongest signal that it will use unlimited monetary resources to save the euro.

"Australia is the only OECD nation that has not been affected by the global financial fluctuation and has led growth among developed nations since 2008," Chen said.

The Organization for Economic Co-operation and Development comprises 34 member nations, including the US, Japan and much of Europe.

Australia's good performance "should be attributed to China, its fast economic growth and the huge demand for commodities and resources", he added.

The Australian economy grew 3.7 percent in the second quarter of this year, and the nation is expected to surpass Spain this year as the world's 12th-largest economy.

"China and Australia are increasingly reliant on each other. Both need each other so much," Chen said.

This year marks the 40th anniversary of the establishment of diplomatic relations between the two countries. "China and Australia should respect and trust each other and deepen understanding about each other, joining hands to enhance the cooperation," Chen said.

According to Chen Gong, president of Anbound Group, a leading Chinese consultancy, the effect of China's slowing economic growth will be "short-lived", and bilateral economic relations will "unavoidably get closer and closer."

In 2007, China surpassed Japan as Australia's largest trading partner. China is the largest destination for Australian exports, and the largest source of Australian imports. Australia is China's eighth-largest trading partner.

Not only does Australia's resources sector and its economy depend on China, the fortunes of Australia's tourism industry also rest on Chinese visitors.

In May, the number of tourist arrivals from China hit 50,000, an increase of 17 percent year-on-year, according to the Australian Bureau of Statistics.

Deloitte Access Economics estimates that Chinese tourists, who accounted for 2.4 percent of all visitors to Australia in 2004, will make up 13.3 percent of the market by 2014.

Chen said that despite the positive and upward trend of bilateral trade, the two nations should accelerate "diversifying" the trade structure from largely centering on mineral goods.

"Bilateral trade exchanges could expand into a wider range of goods and services in agriculture, technology, education, culture and tourism," he said.

"And also, the two need to expand two-way investment."

Earlier this year, China and Australia signed a $31 billion currency swap agreement, in a bid to promote bilateral trade and investment.

While the Chinese government has encouraged domestic companies to invest abroad in recent years, Australia has witnessed the fast growth of capital inflow from China.

In 2011, China's outbound direct investment in Australia surged 86 percent year-on-year to $3.17 billion, according to the Ministry of Commerce. By the end of 2011, China's cumulative outbound direct investment, or ODI, in Australia accounted for 92 percent of that in Oceania.

"Many probably ignore the fact that China's investment scale in Australia is so small. China's ODI in Australia accounts for merely 2 to 3 percent of Australian foreign direct investment," Chen said.

So the ambassador believed there is a lot of room for the Chinese investment to grow. "Nobody from the two sides should doubt the growth. And the Australian government should encourage and support Chinese investment," he said.

While Chinese companies rack up investments in Australia, doubts over Chinese investment deals have surfaced in recent years.

But Chen said they are individual cases. "The majority of Australians, including the politicians, domestic companies and local people, welcome Chinese investment, as Chinese investment creates benefits for both sides," he said.

In July, opposition leader Tony Abbott raised concerns about investment proposals especially by Chinese State-owned enterprises, saying the Chinese investment is complicated. "It would rarely be in Australia's interests to allow a foreign government or its agencies to control an Australian business," Abbott said.

Earlier this year, Chinese telecom equipment provider Huawei Technologies missed out the bidding for the planned national broadband network by the Australian government because of information security concerns.

At the end of August, Australia approved a bid by Chinese textile group Shandong Ruyi for cotton farm Cubbie Station, which covers almost 1,000 square kilometers of southwestern Queensland state. But this ignited new concerns about Chinese investment in agriculture.

"From what I know, the investment environment in Australia is fairly nice and favorable," Chen said.

According to the Ministry of Commerce, about 70 percent of the Chinese cumulative ODI in Australia by the end of 2011 went to mining, and 16 percent of the investment was made in the commercial services sector.

Chen Gong from Anbound Group said "there are misunderstandings and prejudice against the Chinese investment for political and cultural reasons," but "it's not a severe problem".

"Chinese companies need to communicate and interact more with relevant authorities or communities to speak the truth about themselves," he said.

A recent report by KPMG and the University of Sydney urged Australian policymakers to create favorable conditions for Chinese State-owned enterprises and foreign companies, rather than object to them, because no research shows the Chinese SOEs are different from multinational companies.

Lowy Institute, an independent think tank on Australian international policy, said in a report that the majority of Australian interviewees believed there was excessive Chinese investment in Australia, but Lowy's statistics showed China lags far behind the United States, the United Kingdom and Japan, ranking 13th in terms of cumulative investment in Australia.

China and Australia started discussions on the bilateral FTA in May 2005, and talks are still going on. In March, the 18th round of talks was held in Australia.

Estimates from Australia are that a bilateral FTA would help generate additional revenues of A$146 billion ($145.5 billion) for the country in the next two decades.

"The two sides are sincere and willing to sign the FTA, and rounds of negotiations have witnessed remarkable progress. So far, the two countries have reached consensus on majority issues," Ambassador Chen said.

Insiders said they are not optimistic on ending the talks this year, citing Australia's unwillingness to remove investment barriers for Chinese companies.

"It's never easy to conclude a deal like this, as there are always sensitive issues concerning the deal," Chen said.

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